A vague concept can decide a mine’s fate

Jenny Lee, Vancouver Sun04.28.2014

An anti-logging protester is carried away by RCMP after being arrested for blocking Macmillan Bloedel logging trucks at the entrance to Clayoquot Valley. The 1993 exercise in civil disobedience is considered a key day in the history of the concept of social licence.Chuck Stoody
/ Canadian Press

A demonstration against the Enbridge Northern Gateway pipeline in Vancouver last fall. First Nations leader Calvin Helin, president of Eagle Spirit Energy Holdings Ltd., says Northern Gateway has run into social licence problems partly because it “attempted to do its consultation with television and radio advertisements instead of actually talking to the people.” Photo: Darryl Dyck / Canadian PressDARRYL DYCK
/ THE CANADIAN PRESS

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VANCOUVER — Not so many years ago, the value of a gold mine was based on three things: the amount of gold in the ground, the cost of extraction and the world price of gold.

Today, there’s a fourth factor — social licence.

“Today, I can show you two mines identical on these three variables that differ in their valuation by an order of magnitude,” Wharton School management professor Witold Henisz quotes a mine executive saying. “Why? Because one has local support and the other doesn’t.”

Social licence has become so important, it’s worth more than its weight in gold.

“The value of the relationship with politicians and community members is worth twice as much as the value of the gold that the 26 mines (studied) ostensibly control,” Henisz’s told Knowledge@Wharton.

While the concept of social licence has gained traction in the forestry, mining and heavy oil sectors, the concept is on the cusp of exploding into a new industry in its own right. Many engineering and construction firms, developers, lawyers, accountants, environmentalists, academics, politicians, lobbyists and consultants of all stripes include social licence as a key practice area.

“We are integrating public consultation into the environmental assessment steps much more than we would have a decade or two ago,” said Matt Hammond, senior environmental assessment specialist of Pottinger and Gaherty Environmental Consultants Ltd said. PGL works on urban land development and resources.

In the past decade, effort spent on gaining social licence has “at least doubled,” said Brian Yates, SNC Lavalin’s vice-president of impact assessment and community engagement. “I think it’s because there have been projects around the world, including in our own back yard, that have hit problems related to inadequate engagement with local communities, and even if those communities on paper are somewhat powerless to make the decision, they can affect the decision makers.”

Social licence is community acceptance of an organization’s activities in an area. It doesn’t come on a piece of paper and it’s a moving target based on public perception at any moment in time. One can get a sense of whether it’s there by watching a Twitter feed, reading a newspaper report or listening to local opinion leaders, Yates said. There’s no one way to define it and there’s no one way to achieve it, he said.

Yet social licence is now so critical to business that the multinational consulting firm Ernst and Young calls it the fourth biggest business risk facing the mining industry this year.

Similarly, Enbridge and Kinder Morgan’s controversial heavy-oil pipeline proposals are up to their elbows in social licence issues.

Kinder Morgan president Ian Anderson is spending up to one-third of his time courting social licence from 103 First Nations communities, the Financial Post has reported. And while Enbridge’s $6.5-billion Northern Gateway secured federal review panel approval, 10 First Nations and environmental groups have filed court challenges.

“The people have spoken on Enbridge,” First Nations leader and author Calvin Helin, president of Eagle Spirit Energy Holdings Ltd., said. “The company attempted to do its consultation with television and radio advertisements instead of actually talking to the people.”

Communities are not only speaking out — they are making sure their voices are heard.

“It seems to me that the only licence that matters is social licence,” Helin said recently in announcing Eagle Spirit’s proposal for a new pipeline that will compete with the struggling Enbridge project.

Even in China, local communities are voicing concerns about industrial developments, said Carolyn Egri, a professor at the Simon Fraser University School of Business. Greater wealth, education, and mass and social media have increased awareness around corporate social responsibility and environmental sustainability.

Remember the 1993 Clayoquot Sound protest against clearcut logging? That was a landmark event in social licence history, Egri said.

Today, corporate social responsibility issues cross international boundaries and even extend beyond a company’s life cycle.

Decades ago, the Cominco Trail smelter — now part of Teck Resources ­— discharged toxins into the Columbia River. At the time, it was common practice, Egri said. Now, U.S. communities downriver are seeking compensation.

Decisions based on the good of society are rising in importance against the needs of a market economy, Helin said.

“The West is attached to this very legalistic way of doing things and how much more honest are things as a result of that?” he asked. “My dad was a commercial fisherman and he always did things on a handshake. If there’s no trust in society, which is what social licence deals with, what else is there?”

As community groups gain expertise at asserting their needs, business is grappling to quantify increasing risks.

Social licence is a key driver of financial performance, said Thibaut Millet, Ernst and Young’s associate partner for climate change and sustainability services. Regulatory delays, community protest and permitting issues can drive up costs. Meanwhile, investors and potential investors may lose interest if regulatory approval is at risk, and share prices can drop, leading to loss of value to shareholders, said Michelle Pockey, a partner with legal firm Fasken Martineau.

Millet’s group calculated that for one African mine, investing a few million dollars in local workforce training could yield four or five times the initial investment in terms of savings over the project’s 35- or 40-year life span.

At the same time, governments are becoming more demanding.

“They are definitely asking for more,” Millet said. “There have been a wave of revisions in the mining regimes around the world to create more shared value. Essentially government is asking for more investment and performance from an environmental and social perspective.”

The bottom line is organizations must now create value for stakeholders as well as shareholders, said Millet who has led development of a free social licence financial valuation tool (at fvtool.com).

Social licence is a useful concept specifically because it goes beyond legal requirements, said Spencer Chandra Herbert, Vancouver-West End MLA and NDP environment critic.

“Governments in the end are elected to make decisions,” Herbert said, but “when you get on the ground, there’s all sorts of realities a bureaucrat may not understand.”

“To be clear, social licence doesn’t mean you have 100-per-cent approval,” Herbert said. But, he said, the goal is to seek broad public support.

But which publics count?

“Is it the most vocal?” Charles Gauthier, president and CEO of the Downtown Vancouver Business Improvement Association, asked. “Is it the ones funded extremely well by outside groups?”

Allowing community to grant ‘licence’ can be problematic, he said. Take bike lanes. “You’ve got the greater good ... and you’ve got specific neighbourhood concerns,” Gauthier said. “How can we reconcile those two points of view?”

Whether the development is a mine, a pipeline, a highrise or a laneway house, the balance between societal needs and individual parties wants is shifting. Experts are debating the merits of market forces versus regulation in managing this balance, Pockey said. Canada is using regulation to require public engagement steps, but some argue this leads only to a fair hearing for a few, not necessarily a social licence to operate.

The residents of Kitimat have just voted against Enbridge’s proposed pipeline in a non-binding plebiscite by a vote of 1,793 to 1,278. On Tuesday, Kitimat District Council voted to oppose the project. The federal cabinet is expected to release its decision on Northern Gateway, the pipeline that would end in an oil port in Kitimat, by June.

Meanwhile, First Nations leader Helin says simply that social licence is a new business reality, it’s the “new normal,” and it works.

Annita McPhee, president of the Tahltan Central Council, would agree. McPhee has negotiated some $2 billion in partnerships and agreements for her 5,000 member nation in Northwestern B.C.’s Stikine Valley.

“Each First Nation values things differently,” McPhee said. “Look at us. Fortune Minerals does not have social licence on our territory because their project is in the Sacred Headwaters and the Tahltan people have said they don’t want it.”

“Social licence isn’t something you can agree to give,” Pockey said. “It’s something that happens or doesn’t happen. Social licence is the end result of steps that companies take to address the expectations that other affected parties have of them. Whether those expectations are reasonable or unreasonable is another matter.”

Getting social licence

Getting everyone to agree a dream, Egri said. “The potential for full consensus in a democratic society is very minimal anyhow. It’s about doing the best that you can.”

Start by building trust, Pockey said. “It has to be genuine.” Talk early and talk often, create a good engagement strategy, don’t rely only on legislated processes, and seek an interest-based approach rather than a positional approach.

Own your own message “well before anyone defines you,” advised Yates, whose corporate clients are all taking social licence very seriously. “So you need to have a social media strategy, you need to understand who the stakeholders are, you need to understand what their issues might be and be ahead of them.”

As regulators seek to fill the gap between community expectations and existing laws, the key to achieving and maintaining social licence is to create shared value, Millet said.

A vague concept can decide a mine’s fate

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